Credit card balance transfers can either help you manage credit card debt or become a mistake that gets you further into debt. Before the CARD Act, many credit card issuers allowed you to transfer balances for free and to incur no finance charges during the first few months. CARD Act changes make balance transfers less attractive because they led to high fees.
If Fees Are Too High
As of 2011, the CARD Act prevents credit companies from raising your annual rate unless you are late more than two months. That's why they've instead raised the fees for transferring balances. Before, transfers were free or cost up to 3 percent of the balance. As of 2011, most issuers charge 3 to 5 percent. If you have a large credit card balance, the transfer fee could cost more than what you would pay in finance charges on the old account. Also, balance transfers will probably rise over time. In March 2011, for example, Discover's average balance transfer fee increased 0.08 percent over the previous month and the company stopped most free-transfer programs.
If It Piles On More Debt
Balance transfers probably won't help someone who cannot control his spending. Paying only the minimum on the balance transfer could leave you with debt at the end of any promotional rate. The off-teaser rate could be far higher than that of your old balance, which may mean higher finance charges on the balance over the life of the loan. Since your other cards may have a zero balance, it could also entice you to add even more credit card debt.
If You Don't Qualify For Teaser Rate
Not all credit card companies give you the zero percent teaser offer; you must qualify with a good credit score. If you do not qualify for the promotional rate and ignore the fine print, you may end up paying an interest rate equal to or higher than on the original account on top of any fees. You may not even realize this until your first statement.
Tip
Always pay more than the minimum on a balance transfer and have a budget that eliminates the balance completely before the teaser rate ends. The CARD Act allows the credit card companies to apply minimum payments to the balance with the highest rate first -- credit card issuers differentiate between transfer balances and payment balances. Read the details of the agreement before applying for or accepting the card and make sure the creditor includes the teaser rate in the contract.
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